Since our last update, the Brazilian economy has shown increasing signs of deterioration. Indeed, consumer confidence has headed lower, inflation has remained near the upper limit of the central bank's tolerance band, the real has sold off aggressively to trade near 2009 levels, and interest rates continue to head higher.

With the economy's recovery showing signs of weakness, we believe that economic activity is likely to stagnate in H213, informing the downward revision of our 2013 real GDP growth forecast to 2.0%, from 2.6%. We are downgrading our real private consumption growth forecast for 2013 to 1.2%, as we believe that price pressure will continue to erode consumer confidence and eat into purchasing power in the coming months, while higher interest rates are likely to constrain consumers' take-up of credit. Food and retail consumption is likely to outperform among the country's private consumption items, and we project generally strong sales growth for the main companies in the sector. We also believe that a moderation in input prices (grains) could help margins for these companies to recover in the coming months.